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If Michigan Democrats really want to help people, then they need to adopt policies that tax the Rich and Corporations

February 1, 2023

Just days after the 2022 elections, Michigan Senate Democrats made the following statement, “Since 1984, Republicans have used their control of the Michigan Senate to block things Michigan families need. No more.”  

For the first time since the early 1980s, Democrats control the Michigan legislature, with Whitmer as the Governor and a majority in both the House and the Senate. We wrote a three part series in November, asking the question, What kind of change do we really want to see in Michigan. Based on one of the first legislative proposals coming from the Democrats, the change were are likely to see will be marginal.

On Monday, MLive posted a story with the headline, House, Senate Democrats differ on when to give Michigan seniors pension tax relief. The article discusses the the different bills passed recently, by the Michigan House of Representatives and the Michigan Senate. The House Bill that was passed was HB 4001 and HB 4002. The Senate bill that was passed is SB 0001. 

The differences that were discussed in the MLive article, have to do with when to repeal Michigan’s tax on retirement pensioners while boosting its Earned Income Tax Credit to 30%. The MLive article writes, “The EITC aids low- to moderate-income workers and families get a tax break according to the Internal Revenue Service, though the amount returned is relative to if the filer has children, dependents, is disabled or meets a slew of other criteria.”

Now, these bills are ultimately a good thing, in that they will mean that families and individuals who make moderate to low incomes, will have a little bit more money coming to them because of these tax changes in Michigan. According to a recent article in The Bridge, Whitmer’s tax cut plans would benefit more than 1.2 Michigan families. Some 700,000 households that would be in line to save more than $300 annually under an expanded Earned Income Tax Credit (EITC), while about 500,000 retirees would save about $1,000 per year in pension taxes. However, these bills do not address the larger tax policy discrepancies, which are how the state taxes corporations/businesses and members of the Capitalist Class. The Bridge article also provides some insight into why we will not likely see tax policies that will target the rich and corporations/businesses in Michigan. 

Democratic lawmakers say more aggressive tax code changes — such as taxing the rich at higher rates or expanding corporate taxes — are unlikely given their slim, two-seat majorities in both the House and Senate. 

“Because it’s been 40 years since Democrats have had control of Lansing, there are so many sensible and relatively easy and very important changes that we can make that will really help people in Michigan,” said Sen. Jeff Irwin, D-Ann Arbor. 

“So some of those more difficult, more thorny, more complicated conversations around tax policy are going to be harder to get done because there’s just so much work to do.”

Apparently, Democratic Senator Jeff Irwin doesn’t think that taxing corporations and the rich will really help people in Michigan. Senator Irwin and the Michigan Democratic Party would do well to read a report from the Institute for Policy Studies (IPS) that was released in February of 2019.

The IPS piece notes that a majority of Americans support increased taxation on the rich, primarily because it would benefit everyone else. Here is a summary of the IPS talking points on What States Can Do to Reduce Poverty and Inequality Through Tax Policy. 

STATE ESTATE TAXATION – The estate tax is a levy on large fortunes when they are transferred from one generation to the next, with exemption thresholds that shield middle and working-class families. Before the Bush tax cuts passed in 2001, every state in the nation collected revenue from the state estate tax credit, which sent the first 16 percent of federal estate tax revenue to the states. Congress phased out this tax credit gradually until fully repealing it in 2005. Re-instating a progressive state estate tax in states that lost their state estate tax could generate significant revenue while reducing the concentration of wealth in intergenerational wealth dynasties. 

TAX ON CORPORATIONS WITH EXTREME GAPS BETWEEN CEO AND WORKER PAY – Such tax penalties are easy to administer because U.S. publicly held corporations began reporting the ratio between their CEO and median worker pay to the SEC in 2018. Lawmakers in seven U.S. states and in the U.S. Congress have introduced legislation similar to the Portland tax: California, Connecticut, Illinois, Massachusetts, Minnesota, Rhode Island, and Washington. These efforts build on the living wage movement by creating an incentive to pull down the top end of the pay scale while sending a message that everyone in a workplace contributes value (not just the CEO).

CARRIED INTEREST TAXStates with significant financial sectors can take action to make up for Washington’s failure to close the “carried interest” loophole, which allows private equity and hedge fund managers to reduce their tax bills by claiming a large share of their earnings as “capital gains” instead of ordinary income. This has allowed many of the wealthiest Americans to pay lower rates than firefighters and teachers.  Legislation to close the carried interest loophole has been introduced in New YorkNew JerseyMassachusettsConnecticutRhode IslandMaryland, the District of Columbia, and Illinois. New York Governor Andrew Cuomo has included a state-level “carried interest fairness fee” in his budget proposal two years in a row.

FINANCIAL TRANSACTION TAX – The notion of instituting a Financial Transaction Tax has gained increased attention at the federal level in recent years, but Congress has failed to take action. This would not be relevant in states that do not have a large trading exchange. The Illinois state legislature is considering a bill that would place fees of $1-$2 per contract on Chicago’s commodities and financial exchanges, with revenue estimated at $10 billion to $12 billion per year.

STATE CAPITAL GAINS TAX – A capital gains tax is a levy on income from investments rather than wages. In the 42 states (including DC) that impose capital gains taxes, rates range from 3.1 percent in Pennsylvania to 13.3 percent in California. States without a capital gains tax should implement one and states that have one should increase the rate to at least 10 percent.  Raising or introducing such taxes would mostly impact the wealthy, since the top 1 percent owns half of the nation’s financial wealth and the bottom 50 percent only own 0.5 percent of financial wealth. State capital gains taxes help ensure fairness between those who work paycheck to paycheck and those who pocket dividends.

HIGH-END REAL ESTATE TAXES TO FUND AFFORDABLE HOUSING AND OTHER PRIORITIES – Cities and States should consider taxes on luxury real estate investments, particularly unoccupied, vacant properties.   A huge number of new luxury high-rise properties have been purchased, with many vacant and unoccupied, and many purchased by shell corporations, creating a method for the ultra-wealthy to hide their wealth.  The impact has been to disrupt local real estate markets and push up existing housing prices for rent or sale higher and higher.  States can pass enabling legislation to allow cities and localities to address this problem through taxes on vacant, unoccupied luxury units, and can consider transfer taxes, and laws to require beneficial ownership transparency in real estate transactions. States could also institute graduated real estate transfer taxes, taxing properties transferring over $1 million at progressively higher rates. Think of how much money could be generated for the construction of affordable housing for those who are currently priced out of the market.

LUXURY TAXES – A luxury tax is a duty levied on luxury goods, such as high-end automobiles and expensive yachts. In Connecticut, the sales tax rate jumps from 6.35 percent to 7.75 percent on vehicles costing more than $50,000; jewelry costing more than $5,000; and apparel and footwear costing more than $1,000. The clothing tax also applies to handbags, luggage, umbrellas, wallets, or watches costing more than $1,000. In New Jersey, a tax penalizes both luxury cars and gas guzzlers by imposing a 0.4 percent surcharge on vehicles that have price tags above $45,000 or get less than 19 miles per gallon. 

STATE PAYROLL TAX ON HIGH INCOMES – Federal payroll taxes for Social Security have a huge loophole for the wealthy in the form of a cap on the amount of income subject to the tax. It’s currently $128,400 and is adjusted annually for inflation. This means a multi-millionaire and someone earning $128,400 per year pay the same amount in Social Security payroll taxes — not the same rate, the same amount. States can close this loophole by imposing a state level payroll tax on income above the federal cap.

STATE CORPORATE INCOME TAX – With the federal corporate tax rate dropping from 35% to 21%, this is an opportune moment for states to recoup some of these funds by raising or introducing corporate income taxes. Forty-four states levy a corporate income tax, with rates ranging from 3% to 12%. Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes, while South Dakota and Wyoming have neither. 

The bottom line is, if the Democrats want to put more money into the pockets of regular, everyday Michiganders, then these are the kinds of tax policies they need to adopt if they want to make real changes for Michigan residents and not be afraid to piss off corporations or members of the Capitalist Class. 

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